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SICAV

Emerging Local Markets Bond Fund

Research-driven investment in emerging market local currency sovereign bonds.

ISIN LU1127970090 Bloomberg TRELMQE:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

3.50%
$80.8m

1YR Return
(View Total Returns)

Manager Tenure

16.97%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

-0.21
1.47%

Inception Date 28-Oct-2014

Performance figures calculated in EUR

Other Literature

31-Aug-2019 - Andrew Keirle, Portfolio Manager,
We are cautious about the outlook for emerging market (EM) local currency assets. Recent macroeconomic driven risk aversion could continue in the near term as U.S.-China trade tensions and growth concerns remain. However, valuations have improved and look attractive relative to other global fixed income sectors. If major central banks deliver monetary stimulus as expected in the coming months, we believe EM local currency assets could rebound. However, it remains important to be selective and avoid negative idiosyncratic events.
Andrew Keirle
Andrew Keirle, Portfolio Manager

Andrew Keirle is a senior portfolio manager in the Fixed Income Division and a member of the Global Fixed Income Investment Team. Mr. Keirle is the lead portfolio manager for the Emerging Markets Local Currency Bond Strategy and has important input on a number of emerging markets bond strategies and global fixed income strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We are constructive on EM local currency bonds heading into the second half of 2019. Even after the recent rally, local currency emerging markets bonds remain one of the highest-yielding opportunities in the fixed income market. Valuations against other asset classes also remain attractive.

The technical backdrop should remain supportive of the asset class in the near term. We expect the Federal Reserve to cut interest rates in the coming period and potentially follow with additional cuts over the course of the year. The ECB will also keep interest rates low and may possibly restart monthly bond purchases or even cut rates should economic concerns remain. Many EM central banks are expected, or have already started, to ease cycles as well. The continued low yield environment should keep demand for emerging markets assets strong. We also see the potential for the U.S. dollar to continue to decline against global currencies following an extended period of strength. This could improve the opportunities among emerging market currencies, which have so far lagged the rally in EM local bonds.

However, real and nominal yields in EM local currency bonds have contracted recently even if they remain higher relative to other asset classes. The fact that many of the potential rate cuts have already been priced into the market mean that investors should remain conscious of the downside risk should central banks deliver less easing than expected.

Global macro risks also remain areas to watch. Although the dialogue between the U.S. and China improved at the end of June, a formal deal on trade does not appear imminent and uncertainty could weigh on sentiment for some time. China's policy response to growth concerns will form a key area to watch, and an increase in fiscal or monetary stimulus would provide an additional boost to EM assets.

Despite the wider growth concerns, fundamentals remain broadly supportive in emerging countries, including stable underlying economic growth, more disciplined government spending, largely balanced current accounts, and rational economic policy in most major markets. Should the looser monetary policy outlook translate into improved growth, EM local asset prices would likely rally further.

Overall, the policy uncertainty alongside a handful of idiosyncratic concerns within EM mean that investors need to remain selective. Against this backdrop, we are focused on idiosyncratic opportunities with positive reform momentum and stable fundamentals that can perform in different market conditions. We are overweight select currencies that benefit from reforms and offer attractive carry.

Investment Objective

To maximise the value of its shares through both growth in the value of, and income from, its investments. The fund invests mainly in a diversified portfolio of bonds of all types from emerging market issuers, with a focus on bonds that are denominated in the local currency.

Investment Approach

  • Focus primarily on sovereign debt denominated in the currencies of the respective emerging countries.
  • Integrate proprietary credit research and relative value analysis.
  • Establish independent credit rating by country.
  • Add value through active country, currency and individual security selection decisions.
  • Limit risk through diversification.
  • Employ long-term investment horizon combined with low portfolio turnover.

Portfolio Construction

  • Higher concentration portfolio structure: typically 100-150 securities
  • Duration bands: managed within +/- 2 years of the benchmark
  • Average Credit Quality: BBB
  • Country exposure maximum 30% per country
  • Target tracking error: 200-400 bps

Performance (Class Q | EUR)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 16.97% 3.50% N/A 2.95%
Indicative Benchmark % 18.24% 3.81% N/A 3.03%
Excess Return % -1.27% -0.31% N/A -0.08%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark

Data as of  31-Aug-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 11.25% 3.89% N/A 2.98%
Indicative Benchmark % 11.74% 3.39% N/A 2.78%
Excess Return % -0.49% 0.50% N/A 0.20%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark

Data as of  30-Jun-2019

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 12-Sep-2019 Quarter to DateData as of 12-Sep-2019 Year to DateData as of 12-Sep-2019 1 MonthData as of 31-Aug-2019 3 MonthsData as of 31-Aug-2019
Fund % 2.26% 2.62% 12.63% -2.62% 4.26%
Indicative Benchmark % 1.91% 3.55% 13.01% -1.57% 4.91%
Excess Return % 0.35% -0.93% -0.38% -1.05% -0.65%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark

Indicative Benchmark: Linked Benchmark

Performance figures calculated in EUR

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Effective 1 January 2011, the benchmark for the sub-fund was changed to J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified. Prior to 1 January 2011, the benchmark was the J.P. Morgan Government Bond Index-Emerging Markets Broad Diversified Index. The benchmark change was made because the firm viewed the new benchmark to be a better representation of the investment strategy of the sub-fund. Historical benchmark representations have not been restated.

31-Aug-2019 - Andrew Keirle, Portfolio Manager,
EM local currency bonds delivered negative returns in August. The U.S.-China trade dispute and increased uncertainty regarding Argentina’s politics hampered investors’ appetite for EM assets. The U.S. dollar also appreciated over the month, which further eroded returns in local currency bond markets. Within the portfolio, our overweight to the Argentinian peso had a negative impact. The currency came under heightened selling pressure after Alberto Fernández defeated incumbent President Mauricio Macri, who is viewed as more market friendly, in primary elections by a wider margin than anticipated. Our overweight to the Brazilian real also dragged as expectations grew that the country’s central bank could cut interest rates in the near term. On the positive side, our overweight to Egyptian government bonds aided relative performance, helped by the country’s central bank cutting interest rates during the month. Mexico’s central bank also lowered interest rates in August, resulting in our overweight position boosting performance.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 68.59% Was (31-Jul-2019) 67.05%
Other View Top 10 Issuers

Monthly data as of 31-Aug-2019

Holdings

Total
Holdings
109
Largest Holding Mexican Bonos 4.52% Was (31-Mar-2019) 4.60%
Top 10 Holdings 32.68%
Other View Full Holdings Quarterly data as of 30-Jun-2019

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating BBB A
By % 5.34% -11.02%
Fund 52.42% 24.34%
Indicative Benchmark 47.08% 35.36%

Average Credit Quality

BBB

Monthly Data as of 31-Aug-2019
Indicative Benchmark:  J.P. Morgan GBI - EM Global Diversified

Sources for Credit Quality Diversification: Moody's Investors Service and Standard & Poor's (S&P) split ratings (i.e. BB/B and B/CCC) are assigned when the Moody's and S&P ratings differ. Short-Term holdings are not rated.

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration 5-7 Years 1-3 Years
By % 15.18% -14.76%
Fund 37.68% 10.80%
Indicative Benchmark 22.51% 25.56%

Weighted Average Duration

5.63 Years

Monthly Data as of 31-Aug-2019
Indicative Benchmark:  J.P. Morgan GBI - EM Global Diversified

30-Jun-2019 - Andrew Keirle, Portfolio Manager,

Bond Allocation

  • Our portfolio holds overweight positions in countries with the potential to maintain or ease monetary policy stances amid subdued inflation, such as Brazil and South Africa. We increased out overweight to South Africa during the period due to the favorable election outcome.
  • In Asia, we added to out-of-benchmark Sri Lanka amid contained inflation and high real yields. We also grew our out-of-benchmark positions in China and India.
  • In emerging Europe, we maintained a modest underweight to Turkish holdings where we see potential for further volatility linked to political tensions despite the overall attractive valuations. We moved from an underweight exposure to Russian bonds to being in line with the benchmark over the period.
  • As we continue to seek attractive, risk-adjusted relative value, we expand our opportunity set beyond the benchmark. We continue to hold out-of-benchmark positions, including allocations to Serbia and Egypt.

Currency Selection

  • We hold overweight positions in currencies whose countries are undertaking structural reforms, such as the Philippine peso and Indonesian rupiah, which we both increased slightly over the period. In both countries, the governments continue to make progress on reforms, and we anticipate that this trend will continue.
  • In Latin America, we increased our overweight to the Argentine peso over the quarter as the currency remains attractive from a valuation perspective. The improved outlook for October elections also reduces the downside risk over the coming months. We also modestly added to an overweight to the Brazilian real and opened an overweight to the Mexican peso. The expectations for monetary easing in the U.S. could add a tailwind to regional currencies.
  • The breadth of our research process allows us to evaluate currencies outside the benchmark where we see attractive opportunities. In addition to our exposures to the Serbian dinar and Egyptian pound, we maintained our off-benchmark exposure to the Nigerian naira and Sri Lankan rupee, which we increased this quarter.
  • We remain overweight the Czech koruna as the country's central bank may not implement the same degree of monetary easing as major developed market central banks.
  • The strategy retains a mix of developed and emerging market currency short positions in the Swiss franc, South Korean won, Singapore dollar, and Taiwanese dollar, which we use to fund our preferred overweight positions.

Sectors

Total
Sectors
6
Largest Sector Sovereign 96.22% Was (31-Jul-2019) 93.48%
Other View complete Sector Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark: J.P. Morgan GBI - EM Global Diversified

Largest Overweight

Corporate
By1.94%
Fund 1.94%
Indicative Benchmark 0.00%

Largest Underweight

Sovereign
By-3.78%
Fund 96.22%
Indicative Benchmark 100.00%

Monthly Data as of 31-Aug-2019

30-Nov-2015 - Andrew Keirle, Portfolio Manager,
We maintain off-benchmark allocations to selected U.S. dollar-denominated and euro-denominated sovereign and quasi-sovereign bonds that hold attractive relative value.

Regions

Total
Regions
5
Largest Region Asia 32.82% Was (31-Jul-2019) 31.36%
Other View complete Region Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark: J.P. Morgan GBI - EM Global Diversified

Largest Overweight

Asia
By7.03%
Fund 32.82%
Indicative Benchmark 25.78%

Largest Underweight

Emerging Europe
By-7.46%
Fund 23.86%
Indicative Benchmark 31.32%

Monthly Data as of 31-Aug-2019

Countries

Total
Countries
26
Largest Country Indonesia 10.70% Was (31-Jul-2019) 10.82%
Other View complete Country Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark: J.P. Morgan GBI - EM Global Diversified

Largest Overweight

Egypt
By2.92%
Fund 2.92%
Indicative Benchmark 0.00%

Largest Underweight

Poland
By-5.36%
Fund 3.50%
Indicative Benchmark 8.86%

Monthly Data as of 31-Aug-2019

31-Aug-2019 - Andrew Keirle, Portfolio Manager,
We maintain a preference for countries that are implementing economic reforms, such as Egypt, Serbia and South Africa. We also maintained our overweight in Brazil, where we see continued accommodative monetary policy as potentially boosting the local bond market. Elsewhere, we are also overweight the Philippine and Indian local bond markets as we see potential for reforms and attractive yield opportunities there.

Currency

Total
Currencies
35
Largest Currency Indonesian rupiah 11.30% Was (31-Jul-2019) 11.43%
Other View complete Currency Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark : J.P. Morgan GBI - EM Global Diversified

Largest Overweight

Egyptian pound
By 2.43%
Fund 2.43%
Indicative Benchmark 0.00%

Largest Underweight

New Taiwan dollar
By -4.63%
Fund -4.63%
Indicative Benchmark 0.00%

Monthly Data as of 31-Aug-2019

31-Aug-2019 - Andrew Keirle, Portfolio Manager,
Similar to bond markets, we hold overweight and off-benchmark positions in currencies where countries are undertaking structural reforms and we see upside potential. Conversely, we are underweight currencies we view as having limited relative value. We closed our overweight exposure to the Brazilian real as potential rate cuts in the coming months could weaken the currency. We also reduced our exposure to Argentina due to ongoing political uncertainty following the primary elections. We are also overweight in currencies offering higher real yields, such as the Indonesian rupiah, which should help limit the impact of swings in macroeconomic sentiment.

Team (As of 31-Aug-2019)

Andrew Keirle

Andrew Keirle is a senior portfolio manager in the Fixed Income Division and a member of the Global Fixed Income Investment Team. Mr. Keirle is the lead portfolio manager for the Emerging Markets Local Currency Bond Strategy and has important input on a number of emerging markets bond strategies and global fixed income strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Keirle has 22 years of investment experience, 13 of which have been with T. Rowe Price. Prior to joining the firm in 2005, he was a portfolio manager and analyst at Lazard Asset Management. Prior to joining Lazard, Mr. Keirle spent seven years as a global portfolio manager at Gulf International Bank in London.

Mr. Keirle is a qualified member of the Institute of Investment Management and Research, and he also holds a diploma from the Society of Technical Analysts. He graduated with a B.Sc. in economics and politics from the University of Swansea at the University of Wales.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    14
  • Years investment
    experience
    23

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount Minimum Subsequent Investment Minimum Redemption Amount Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges UK Tax Reporting Status
Class I $2,500,000 $100,000 $0 0.00% 65 basis points 0.75% No
Class Q $15,000 $100 $100 0.00% 65 basis points 0.82% No
Class Sd $10,000,000 $0 $0 0.00% 0 basis points 0.10% No

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

T. Rowe Price Funds SICAV and its sub-funds are domiciled in Luxembourg and therefore considered offshore funds for UK tax purposes. Selected share classes of T. Rowe Price Funds SICAV have been designated “Reporting Funds” by HM Revenue & Customs (HMRC) under the guidelines of the UK Offshore Funds Regulation. These share classes report all relevant tax information to HMRC on an annual basis. Details on the information reported are outlined in the SICAV Shareholder Tax Reporting document that is available in the Fund Range Docs drop-down. Investors in “Reporting Fund” share classes who are considered United Kingdom residents for tax purposes will have any accrued gains treated as a capital gain rather than income upon sale or other disposal of their shares. 

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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